Conditional Violation of Weak-Form Market Efficiency: The Autoregressive Component of Stock Returns with Consideration to the Return Distribution
34 Pages Posted: 16 May 2017
Date Written: May 14, 2017
This paper presents evidence suggestive of a conditional violation of weak-form market efficiency. Evidence suggests that the AR coefficient monotonically decreases along the return distribution, for each value and equal weighted market indices. These results suggest that the AR coefficient is statistically and economically significant in the tails of the stock return distribution, which implies conditional weak-form predictability in extreme market conditions. This finding may also help explain why prior studies have found autocorrelations of varying sign and significance within similar time horizons.
Keywords: Market Efficiency, Autoregression, Return Distribution
JEL Classification: C46, G12, G14
Suggested Citation: Suggested Citation